CPA Advice for Homer Simpson Homer Simpson

CPA Advice for Homer Simpson Homer Simpson FROM: CPA & Associates Economic Substance and Moe's Business Plan Mr. Simpson: I appreciate your contact regarding economic substance and my recommendations as to if you should enter Moe's business plan. With such a large amount of cash taxed on your latest success, it is only obvious that you would want to protect and profit off of what remains. However, one must do so in good ethical standing.

The rest of this memorandum serves the purpose of educating you into making the proper decision for yourself. First and foremost, before entering any business transaction, one must understand the definition of "economic substance," which defined by the United States Treasury Department, means that one "gains tax benefits from a transaction that does not meaningfully change a tax payer's economic position." The IRS has set up protections against such uncalled for reduction in tax liability under the 2010 Revenue Reconciliation Act, section 7701(o).

In other words, there is protection against those that are purposely avoiding paying taxes. In order to lawfully enter this business venture with Moe, the IRS claims that the transaction should be relevant other than in the purpose of economic substance, the transaction changes in a meaningful way, and that the taxpayer have substantial purpose other than economically benefitting from the transaction. Economic profit laws fight against tax evasion even when on paper the transaction looks justified.

Therefore, I would suggest you ignore Moe's comforting statement that it will "literally" meet IRS requirements. As stated above, a taxpayer would have to prove that they are doing the financial transaction for other purposes than to economically benefit from the tax evasion. The federal government has been tightening the laws about unethical profit for some time now. You may recall Martha Stewart's insider-trading scandal, or the accounting fraud of Enron that resulted in the Sarbanes-Oxley Act of 2002.

Though both do not directly relate to your situation, it is clear that one should not attempt to fool the United States government. Once in court, Martha Stewart and the accounting staff of Enron were found guilty. Martha Stewart was convicted of conspiracy and served time in jail, while.